Gold-Backed Crypto Tokens Will Be The Next Big Thing?

In 2008-2011, gold kept going up as the world recovered slowly from the global financial crisis. This year (2020) we have yet another global crisis after COVID-19 pandemic hit the entire world. And once again, gold proved its worth whenever the world goes into uncharted territory. Gold recently broke all-time high and there’s no sign of it slowing down anytime soon.

Even though we had slight corrections, it’s still trading above $1,900.And then, we have the cryptocurrency world, where it was projected to be the next big thing once we have a new financial crisis. Satoshi Nakamoto created Bitcoin after the 2008 financial crisis. He also repeatedly said that fiat currencies’ history is full of breach of trust. It’s not surprising to see the crypto market doing well in 2020, in its first big test against a financial crisis.But, how about the marriage between the two?

How about gold-backed crypto tokens that currently exist on Ethereum? Will they be able to bring the best of two worlds? Let’s analyze why they are needed in the crypto space and why they matter for non-crypto enthusiasts as well.

The Existing Gold-Backed Tokens

There are already gold-backed crypto tokens where their prices are pegged to the physical gold. Tether has one, it’s called XAUT. Paxos also has one, it’s called PAXG. We also have DGX from the Digix team. There are also other gold tokens released by different institutions all over the world but they are not as popular as these names.

Among all of them, I believe PAX Gold (PAXG) is still the most traded gold token in the crypto market. It has decent liquidity, although it’s still not traded very much. While it’s been doing better than ever before, PAXG is still overshadowed by normal utility and governance tokens. Many altcoins have been pumping quite heavily, which have provided a more attractive ROI than gold price.

That being said, the gold-backed tokens still have their own market and their own selling points.

Why Are They Needed?

So, why are these gold-backed tokens needed in the crypto space? Well, it’s quite simple, actually. People who want to have normal stability against fiat inflation and failures would like to choose gold over cryptocurrencies. They don’t go down 50-75% like most altcoins in crypto winter. That’s why if you want to have a hedge against fiat inflation, you want to own physical gold.

The thing is, 2020 is a very different year than the previous financial crisis. Many people in many countries are still trapped in lockdowns or at least have their movements restricted. It’s not that simple to go to a store and buy a certain amount of physical gold in the time of worldwide quarantine. This is where gold-backed crypto tokens stand out. They still have the valuation of gold and yet it’s much easier to buy and/or sell them.

Of course, not all gold-backed tokens are created equal. Some of them cannot back up their claim that each token is backed by real gold. That’s why PAXG is the most popular gold-backed token right now. It is audited by a third party auditing firm regularly, and each of their issued crypto tokens is backed by real physical gold. You can redeem the tokens and exchange them with real gold in your hand, assuming you can travel to their gold vault.

The Future Of Gold-Backed Tokens

This is an interesting question. Nobody truly knows if gold-backed crypto will ever become mainstream. I think it all depends on the fight between fiat currencies vs. gold. If gold can maintain its bullish momentum even after the world starts to recover from this year’s pandemic, it’s quite possible that gold tokens will become much more popular than ever before.Remember that in 2009-2011 gold price kept going bullish despite at the time the world already started to recover from 2008’s financial crisis.

It’s believed that gold might keep going up in 2021 even after the world starts to recover from the current COVID-19 pandemic and financial crisis. In this case, all of these Ethereum-powered gold crypto tokens might become famous as well.